California, the state that prides itself as the birthplace of modern technology and whose policies such as the unenforceability of non-competes contributed substantially to the innovation ecosystem, recently proposed a law that requires innovators to get permission from the state, or be banned.
Last week CA's State Assembly announced AB 1326, a bill that would ban any unlicensed bitcoin or cryptocurrency business activity. It would "prohibit a person from engaging in this state in the business of virtual currency, as defined, in this state unless the person is licensed by the Commissioner of Business Oversight or is exempt from the licensure requirement." Banks, financial institutions, and governments would be exempted under the law, making it even harder for a startup to compete. Worse yet, the bill doesn't even define what "the business of virtual currency'" means, making it both overly vague and counter to the very nature of the trustless, permissionless innovation that bitcoin and blockchain technology enable. So right now, if you're building multisignature technology to better enable people to secure their bitcoin, or developing an open source peer-to-peer remittance app that connects users to send each other bitcoin, the state of CA could very well ban you from operating unless you've received a license.
So for the next wave of entrepreneurs building technology in the bitcoin or blockchain space, the state is poised to say that in order to start your company or release your technology, you must pay $5000 for a license and tens or hundreds of thousands in legal and compliance fees, not to mention requirements such as informing them of your educational background and 10 years of past addresses. That might be awkward for the 21 year old college dropouts working on a cryptocurrency startup. And of course there's no guarantee the state will actually grant the license, or shall we say, permission.
I wrote last summer about the problematic approach that NY state is taking with its proposed BitLicense, an attempt to make virtual currency entrepreneurs demand permission from the state to innovate, and how the even greater danger was that other states would follow suit. I expected a more innovation-friendly approach from California, but this bill may prove me wrong.
The cryptographic technology behind bitcoin itself has tremendous potential to enable more transparency (proof of solvency, real time continuous auditing), and security (multisig, threshold encryption), providing compelling solutions to public policy concerns that licensing regimes only attempt to address. The assumption that the analog-world model of licensing must fit this new and fast-evolving space is ignorant at best and dangerous at worst.
California can and should do better. It can craft policies that enable entrepreneurs to innovate and encourage them to implement good practices on security and consumer protection without requiring licensing and permission. And if California won't do it, there are many other jurisdictions that will. Australia, UK, and Singapore, to name few, are all looking to implement policies to be the crypto Silicon Valley.
Tomorrow, I and others will be discussing the development of cryptocurrency and blockchain policy at the Copia Inaugural Summit. The future viability of this important ecosystem depends on getting it right -- so we need everyone to make themselves heard as the debate moves forward.
from the politicians-don't-understand-anything dept
Like many folks, I'm dreading the seeming inevitability of a Clinton-Bush presidential campaign next year involving Hillary Clinton against Jeb Bush. I'm 40-years-old and half of my life has involved a Clinton or a Bush in the Oval Office (and it's even worse if you count Vice Presidency). Both seem completely out of touch with the real issues of today. Instead, both are so surrounded by political cronies and yes-men that it's difficult to see either candidate as being willing to actually take on the real challenges facing the world today. Clinton is currently dealing with the fallout from her decision to expose her emails to spies while shielding them from the American public. And Jeb Bush is now spouting pure nonsense on net neutrality.
Bush's comments aren't surprising, because despite Democrats and Republicans alike both strongly supporting net neutrality and those who truly understand the details favoring these rules, in Washington DC, net neutrality is a partisan issue. The reason almost certainly has to do with campaign finance. Splitting an issue down partisan lines makes it an issue that politicians can raise money around. Things that everyone agrees on aren't useful for fundraising, and since politicians these days need to spend half their time fundraising, politics gets distorted pretty quickly.
But Bush's comments are particularly clueless, trotting out both debunked talking points and clear misstatements that appear to have been fed to him by the broadband players.
“The idea of regulating access to the Internet with a 1934 law is one of the craziest ideas I’ve ever heard,” he said. It was the first time Bush had weighed in on the subject since the FCC voted.
“Just think of the logic of using a 1934 law that was designed when we did have a monopoly for wireline service as the basis to regulate the most dynamic part of life in America,” Bush said. “It’s not going to be good for consumers. It’s certainly not going to be good for innovation.”
Except, you know, that's not true. The 1934 Telecommunications Act was rewritten in 1996by Republicans, who set it up this way with a clear plan for broadband to be covered by Title II. As Tim Lee at Vox recently explained:
The awkward thing about this is that the rules were drafted by a Republican Congress in the 1996 Telecommunications Act. In that legislation, Congress created two legal categories for online services: a low-regulation category for online services (known unimaginatively as Title I) and a high-regulation category for companies that provide basic infrastructure (called Title II).
When telephone companies began offering broadband access using a then-new technology called Digital Subscriber Lines, it was widely accepted that Title II — the stricter regime designed for basic infrastructure — would apply. After all, telephone companies had been governed under Title II for decades before that. Title II rules had ensured that telephone companies didn't strangle the burgeoning market for dial-up ISPs, which provided internet access over telephone lines.
But Bush trots out the 1934 argument in a totally misleading way. And yes, in 1934 there was a monopoly for wireline service, but in 1996 when the Act was rewritten (again, by Republicans), there was actually a lot of competition in the ISP business thanks to line sharing. Yet, today, everyone knows that there's basically no competition. While not a monopoly, it's at the very least an oligopoly with very little choice for most consumers.
Furthermore, the rules are pretty clearly just basic rules to prevent anti-consumer behavior by the ISPs. How that's going to be "bad for consumers" is hard to fathom. And considering that many of the most innovative internet companies have come out strongly in favor of net neutrality, it's hard to see how it's going to be bad for innovation. You can't even argue that it's going to be bad for broadband companies either, since many independent broadband providers, like Sonic.net, have come out in favor of the rules. As we've noted in the past, it's only bad for broadband providers that want to treat customers badly.
So, does Jeb Bush really think he understands internet innovation better than all these internet companies that have pointed out how the new rule is helpful to innovation?
Is Jeb Bush giving a giant middle finger to internet innovation? That hardly seems like a good campaign move.
But, apparently, Bush not only is doing that, he's also going to totally misrepresent others to do so:
Bush said that Netflix and other backers of net neutrality are already regretting the scale the FCC’s action. “There is no support for this now,” Bush said. “The people who were concerned about this, the content providers like Netflix and others, have now disowned this.”
That's just hogwash. There's massive support for this, which Bush would have noticed if he actually paid attention to the internet, which celebrated when the rules were approved. Anti-net neutrality folks have seized upon an out-of-context statement from a Netflix exec claiming that it would have been preferable to find another route -- but that's not disowning the rules. We've been among those who have pointed out for months that reclassifying under Title II was simply the best of a bunch of not great solutions. Yes, it would have been better to have something even cleaner than reclassification, but that option was not on the table.
Restrained rules, based on Title II, are a perfectly reasonable solution to stopping broadband providers from implementing anti-consumer practices. The only "innovation" it may harm is the broadband guys innovating new ways to screw over consumers and successful internet companies. If Jeb Bush is looking for support from the most innovative sector on the planet, spewing lies and misrepresentations about key issues for the internet world seems like a piss poor way to go about it.
We've written a few times about Elon Musk and Tesla's decision to open up all of Tesla's patents, with a promise not to sue anyone for using them. We also found it funny when some reacted to it by complaining that it wasn't done for "altruistic" reasons, but to help Tesla, because of course: that's the whole point. Musk recognized that patents frequently hold back and limit innovation, especially around core infrastructure. Since then, Musk has said that, in fact, rivals are making use of his patents, even as GM insists it's not.
However, as some may recall, when Musk made the original announcement, the terms of freeing up the patents were at least a little vague. It said that Tesla "will not initiate patent lawsuits against anyone who, in good faith, wants to use our technology." That "in good faith" claim had a few scratching their heads, and pointing out that still gave Tesla an out. We were a little disappointed that the company didn't make the terms entirely clear, believing that the "in good faith" line would likely scare away some companies from actually using the patents. However, recently, at the Detroit Auto Show, when questioned about this, Musk clarified that he really meant to make them completely free for anyone to use, no questions asked, no licensing discussions needed:
Around the three-minute mark someone asks how many automakers have taken Tesla up on the offer to use its patents, and Musk notes:
Musk: We actually don't require any formal discussions. So they can just go ahead and use them.
Reporter: Is there a licensing process?
Musk: No. You just use them. Which I think is better because then we don't need to get into any kind of discussions or whatever. So we don't know. I think you'll see it in the cars that come out, should they choose to use them.
In other words, Musk is saying what most of us assumed all along was the point. Hoarding the patents and blocking others doesn't help him at all. Letting others expand the market does. And licensing discussions are unnecessary friction and a waste of time.
All good, right?
Well, no. It appears that clueless Wall Street types are absolutely flipping out over this (possible registration wall). Some outfit called "Technology Equity Strategies," which doesn't seem to understand the first thing about how innovation actually works, posted an insanely long and ridiculously misguided note on how this is horrifying for anyone invested in Tesla. The descriptions are hilarious, where you can almost hear these Wall Street types pulling out their hair over this idea of *gasp* actually letting others use Tesla's patents. First, it notes that Musk called them "open source" patents, and spends way too much time detailing the "official" definition of open source, and then says that the patents are now "public domain" (apparently not recognizing that public domain and open source are not the same thing -- though in this case it might not matter). Technology Equity Strategies is very upset about this.
The restrictions in the June 12 blog of "good faith" and "we will not initiate" are over with. They are finished. These patents are either in the public domain, or they have at minimum been rendered unenforceable against all users, "good faith" or not.
Why? Because in their non-innovation minds, all they care about is how do you best value the stock, and giving up patents is giving up an asset. The note first (mistakenly) argues that many areas of the tech industry rely on patents as barriers to entry and that's where their advantage comes in (rather than execution, which is the truth). And so, it thinks now some other company will just come in and eat Tesla's lunch:
Is it possible that the massive capital and labor needed to attain leadership might not be eroded in by imitators in Asia, by large companies with resources to buy market share, by companies whose strengths are manufacturing process, global footprint and scale?
If so, the embedded option on a leader in a new niche in the auto industry and on a shift in the competitive dynamics in the auto industry might indeed be a valuable option.
But Mr. Musk was not interested in that. He is happy to give away the advantages that actually provide great profitability in some sectors of technology. He wants to compete as an auto company, in the brutal and capital intensive way that auto companies compete. More fundamentally, he is willing to eliminate the possibility in the future of competing as a technology company, which depend on the IP protections of patents, copyright, and trade secrets.
Of course, the reality is that Musk recognizes what many in this sector recognize: that sharing the ideas helps speed along innovation, creating greater and greater opportunities, which you can realize by executing well. Musk is confident in Tesla's ability to execute and (as we noted earlier) recognizes that sharing the patents actually helps Tesla by getting more electric vehicles on the market, meaning more overall infrastructure that makes Tesla cars more valuable.
This is the ridiculousness of Wall Street: sometimes it simply can't understand the nature of a non-zero sum game. Giving up any "advantage" is seen as helping others, without recognizing that helping others can also help you out tremendously. Instead, these investor types believe in the myth of intellectual property, that it's patents that make a company valuable:
Intellectual property is an important foundation for valuation technology companies. Funds that own Tesla may not be the same institutions who own GM or Ford, but many will be familiar with Qualcomm and ARM.
IP goes a long way in explaining why Qualcomm has a market cap of $110 billion, and ARM has a valuation of 23 billion (18x trailing revenues) while Nokia and Dell were sold for less than two times revenues. Nokia and Dell did fine work for a while as manufacturers and product companies. There was a time when they too looked like winners based on product execution. But they didn't own core IP, and so when product cycles shifted, they were left with little value.
Yes, ARM and Qualcomm are both patent-focused companies (that dip their toes into trolling all too often). And, yes, companies that don't execute well can lose out in the end, but cherry picking a few companies that have flopped on execution, while pointing to a few trollish companies as success stories, doesn't make a very strong argument. It's basically saying "yes, invest in the companies that don't believe in their own ability to execute, who have a fallback as a patent troll." That's not exactly a strong endorsement. Tesla believes in its own ability to innovate -- and these Wall Street guys think that's a bad thing.
And then there's the rewriting of history:
Let's look at Apple. Apple and Steve Jobs learned the hard way. Some of us will recall that an early Apple (believing that IP wasn't important) opened up its IP to the basic Mac interface with a royalty free license to Microsoft.
This resulted in Microsoft Windows taking nearly the entire PC market from Apple, and nearly bankrupting Apple. In his second chance, Steve Jobs learned about the importance of IP. This is a lesson that Mr. Musk failed to absorb.
Except, that's totally incorrect. While Apple had licensed a few aspects of its UI, that licensing agreement became meaningless by the time of Windows 2.0. Then Apple sued Microsoft and lost, because it was trying to use copyright law to claim things that could not be covered by copyright law. And that's not why the PC took over the market. So this isn't a lesson that Musk failed to absorb, because it never happened.
The Grand Gesture shows the worrisome sincerity in Musk's repeated statements that he is primarily on a mission to get other companies to sell a lot of electric vehicles, not to make money.
A worrisome sincerity? No, it's showing that Musk recognizes that if the market for electric vehicles does not grow massively, then he won't make money. He very much wants to make money, and a good way to do that is to build out the overall market for EVs, allowing Tesla to thrive. And these Wall Street folks first mock the idea that Musk might first invest to grow the market, by then... claiming that Asian makers might do the same thing:
No doubt Mr. Musk believes that if the industry embraces EVs, then Tesla will succeed as part of it. But is this plausible, that everything will just work out for the best. Is it plausible that Musk can succeed as a manufacturer in the U.S. competing against manufacturers in Asia who may take zero margins to grow a business, using Musk's proven designs? U.S. companies have learned over and over that IP is necessary to get a sustained profitable return on their innovations.
Actually, no. Plenty of tech companies don't think that IP is "necessary" to get sustained returns -- they think the opposite. Patents get in the way of profitability. They require lots of lawyer time and threats of lawsuits.
Frankly, Tesla opening up its patents seems like a move that shows how confident it is in its execution abilities, and makes the company a lot less likely to rest on its laurels and become nothing but a "licensing" company down the road. The fact that people who don't understand what a mess patents are and how they slow down innovation are now jumping in making ridiculous claims like Tesla's decision is why Apple can now jump into the EV car market just shows how little some people understand patents. The "myth" of patents as a powerful tool of innovation is still out there, and that's a shame.
I wanted to drop a note to the Techdirt community about an exciting new project that we're launching one month from today: The Copia Institute, a new network of future-focused innovators. Copia is Latin for "abundance" -- and information abundance is the hallmark of our time, and the source of many of its biggest opportunities and toughest challenges. We're working collaboratively with everyday internet users, business experts and technology policy leaders to focus on the challenges and opportunities we face in this age of abundance.
Think of it as a think tank for the information era.
While following and writing about issues related to innovation, business models and policy, we've seen up close the amazing power of innovative startups and pioneering technologies to change the world in powerful ways. It's hard to remember what things were like just a decade ago -- before Facebook, iPhones, YouTube, Twitter, Airbnb and more. Our lives have changed in profound and exciting ways -- and such change will continue to advance rapidly in the future. It's inspiring, exhilarating and wonderful. But it also presents unique challenges. Innovation can upset existing industries. It can collide with outdated regulations that were originally designed to protect us but now serve as roadblocks that slow progress and weaken the innovative spirit. And, sometimes, it creates ethical challenges and questions that deserve deeper levels of consideration.
With Copia, we'll bring together innovators, internet users, policymakers and experts with diverse and distinct perspectives to discuss these issues. But we won't just talk, we'll act. We will work to resolve the issues of today while preparing to address the issues of tomorrow. We want to help innovators tackle issues early on -- and look where we, as a group, can develop creative ways to embrace opportunities that make the world a better place while minimizing downsides or negative consequences.
We're launching Copia with an Inaugural Summit on March 12-13th at the Tech Museum of Innovation in San Jose. We'll host stimulating brainstorming sessions on disruptive innovations and policy challenges, as well as a special tech industry General Counsels' roundtable to discuss principles of innovation.
We have an ambitious agenda, so stay tuned. We will share more details as the summit approaches, but until then, I look forward to seeing some of you there!
sciamiko points us to an interesting study done by Stuart Graham, who was the first chief economist of the US Patent Office (we were initially excited about his hiring, though the only other time we reported on his work, it was to wonder why a paper hid his connection to the USPTO), looking at whether or not inventors choose to reveal the "secrets" of their invention prior to actually getting the patent. Graham and his co-author, Deepak Hegde, examined what happened after the American Inventors Protection Act (AIPA) went into effect in 2000. Part of the AIPA was that the USPTO would publish patent applications after 18 months (usually well before the patents were approved or rejected) -- rather than only making them public after they were approved. The usual suspects (patent hoarders and self-described "small inventors") screamed like crazy about how this would completely destroy American innovation, because they'd have to reveal their secrets too early. To try to appease these concerns, the bill included a loophole: patent applications could be kept secret if they didn't file for foreign patent protection -- which was the case for about half of all US patents.
That gave Graham and Hegde a nice dataset to look at, to see who chose to keep their patent applications secret until approval, and who let those applications be revealed. If those who freaked out about the publication requirement were right, it should be clear in the data that, when given the chance, businesses kept their patents secret, and the "secret" patent applications should be worth more than the non-secret ones. The reality? The exact opposite was true. Inventors chose to reveal their patent applications readily, even when they had the option of withholding them, and the more valuable patents tended to be the ones that were revealed:
They examined 1.8 million granted patents filed at the USPTO from 1995 to 2005 and analyzed the disclosure preferences of the inventors. Their analysis found that, among those not seeking foreign protection, about 85 percent of inventors filing a patent since 2000 chose to disclose information about their patents prior to their approval.
"Overwhelmingly, those inventors patenting only in the U.S. are choosing 18 month disclosure," co-author Hegde said.
And the study appears to show that the complaints and worries of those small inventors about this increased transparency was, in fact, complete bunk:
When the AIPA was passed, one of the biggest complaints was that the publication requirement would hurt U.S. small inventors, but the researchers found that individuals and small companies still opted for disclosure during the study period.
"Small U.S. inventors are not choosing the secrecy route," Graham said. "When they patent only in the U.S., they are choosing secrecy in only about 15 percent of the cases, not statistically different than the rate among all other types of inventors."
Another major complaint of the AIPA was that disclosing patent secrets would stop the engine of innovation in the United States and that society would get less meaningful inventions. Contrary to these arguments, the researchers found that patents born out of secrecy were overall less valuable than those that opted for disclosure.
"When we examine indicators of patent value, we find consistent evidence that the least-valuable and least-impactful patents are those that opted for pre-grant secrecy," Hegde said.
This isn't particularly surprising to us -- as, contrary to the way some think, we've pointed out for years that hoarding information tends to limit innovation, while sharing it is likely to lead to greater innovation. Of course, it's the same "small inventors" who insisted the sky was falling over the AIPA who are now protesting the latest attempt at patent reform, making similar claims about how it will drive down quality and drive inventors out of business. They were totally wrong last time, and it's likely they're totally wrong again.
Stan McCoy was, until recently, the lead negotiator on "intellectual property" for the US Trade Representative -- making him the main guy behind ACTA and the horrific intellectual property sections of the TPP and TTIP agreements. Then, last year, he jumped ship exactly where you'd expect him to go: becoming a lobbyist for the MPAA. McCoy, as we've noted, has a history of condescension and mocking towards anyone expressing concern for "the public," rather than "the industry" which pays his bills.
So, it should come as little surprise at all that, in his current role, he's out there trotting out more bogus claims that ignore reality, in order to push the agenda of his employer. In a blog post discussing his appearance on a panel in the UK, McCoy insists that he's busting the myth that there's piracy because the content isn't available from authorized sources:
We need to bust the myth that legal content is unavailable. Creative industries are tirelessly experimenting with new business models that deliver films, books, music, TV programs, newspapers, games and other creative works to consumers. In Europe, there are over 3,000 on-demand audio-visual services available to European citizens. According to a recent KPMG report, 86% of the most popular and highest quality films and television series are available across legal digital platforms to UK consumers.
Okay, so this is McCoy's attempt at mythbusting. And it fails, pretty miserably, as TorrentFreak's Ernesto showed with just a little bit of effort. He went and looked at the top 10 most downloaded films last week and busted McCoy's weak attempt at mythbusting:
Click through for TorrentFreak's clickable chart
And, of course the KPMG study that McCoy relies on is quite misleading as well, since it actually found that over 80% of the top movies are not available on Netflix, by far the most popular service. That means that if people actually wanted to see the movies they want, they face a fragmented, confusing market, in which they'd need to sign up for a bunch of different services with different limitations to actually see what they want.
In other words, despite the MPAA pretending otherwise again and again, it remains a simple fact that the lack of availability and convenience on authorized services has a difficult time competing with the availability and convenience of unauthorized offerings. The same thing has been true for well over a decade. The music industry has mostly figured this out, so why can't the movie industry?
Of course, what McCoy can't really say is the truth: the movie industry can't readily adapt because it will piss off the theaters. The recording industry couldn't more fully embrace the internet until the old record stores finally lost their power, and the studios are held back by the theaters nowadays. Of course, the MPAA could and probably should be trying to help transition to the future by pushing back against the theaters' outdated views and explaining to them how they can also easily compete with home viewing by providing a better in-theater experience. But that takes real work. Instead, the MPAA's focusing on "content protection" because that way it retains a reason to exist.
Techdirt has written a number of times about growing evidence that good, reasonably-priced streaming services are reducing dramatically the number of illegal downloads in the regions where they are available. One of the countries where that was observed some years ago is Norway. Now, a new report in Music Business Worldwide indicates that things are looking even better for the recorded music business there:
A countrywide survey in December 2014 showed that just 4% of Norwegians under 30 years still used illegal file-sharing platforms to get hold of music.
Even better for the worldwide industry, less than 1% of people under 30 years said that file-sharing was their main source of obtaining music.
The head of the International Federation of the Phonographic Industry (IFPI) in Norway, Marte Thorsby, explains why she thinks that has happened:
"We are now offering services that are both better and more user-friendly than illegal platforms… In [the past] five years, we have virtually eliminated illegal file-sharing in the music industry."
There we have it from the recording industry itself: offer "better and more user-friendly" products and illegal file-sharing just goes away on its own -- no intrusive surveillance, punitive three-strikes or clumsy site blocking required. How much clearer does it have to be?
As we've been covering for a while now, the FAA is doing everything it can to delay nearly all commercial use of drones, despite the many possible innovations drones can lead to. Are there some legitimate safety concerns? Absolutely, but the FAA's approach of "ban everything" and then drip out a few exemptions here and there is problematic. Last year, we wrote about a key test case, involving Raphael Pirker, in which a judge declared that the FAA's ban on drones was illegal (mostly for procedural reasons). A few months ago, that got overturned... and now Pirker and the FAA have settled the matter, with Pirker agreeing to pay $1,100 [pdf] while not admitting to any wrong doing:
Respondent agrees to pay $1,100.00 (the "settlement proceeds") by January 22, 2015, to the FAA in full and final settlement of this matter.
It is understood and agreed that neither the Respondent's execution of this settlement agreement nor payment of the settlement proceeds constitutes Respondent's admission of any of the facts or regulatory violations alleged in the FAA's June 27, 2013 Order of Assessment or the Amended Order of Assessment that will issue pursuant to this settlement agreement.
From a financial perspective, I'm sure it makes sense for Pirker to settle this agreement for $1,100, rather than having to pay a lot more to go to court. But for the rest of us, this kind of sucks. It would have been good to have at least been able to test whether or not the FAA's rules are really legal. Or, at the very least, put more pressure on the FAA to stop dragging its feet and to start issuing actual rules that allow drones to be used for commercial purposes. The longer we wait, the more likely it is we cede innovation on this important area to other countries.
In the past we've discussed the Shirky Principle, named after a statement by Clay Shirky that:
"Institutions will try to preserve the problem to which they are the solution."
In some ways that's a corollary to Upton Sinclair's famous quote:
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!"
I've long believed that the MPAA has this problem in spades. The group, which is supposed to be about helping the big Hollywood studios, has long taken a very different positions. Five years ago, we wrote about how bizarre it was that the MPAA had an entire "Content Protection" division. As we noted at the time, the organization not only had a Chief Content Protection Officer, but also an Executive VP of Content Protection, a Senior VP of Content Protection and a regular VP of Content Protection, and probably a handful of Content Protection Minions or whatever they call their non-VP worker bees.
And yet, there didn't seem to be anyone at the MPAA who had a title along the lines of "Chief Open Internet Evangelist" or "Chief Digital Business Model Strategist" or something along those lines, who could have been working with Hollywood to help transition the organization into the digital age. No, instead that transition has come in fits and starts with the MPAA itself fighting against most of the key moves and doing little to help forward thinking filmmakers and studios. In fact, if you talk to many of the up-and-coming filmmakers these days, they're just as angry about the MPAA's stance as open internet supporters -- because they realize just how counterproductive a "protection" regime is, rather than a "embrace the opportunity" regime would be.
Eli Dourado has written up a fantastic discussion of this very idea, by focusing on two key things that came out of the Sony Hack that, together, more or less highlight the point above: that the MPAA is not pro-Hollywood at all, but rather seems entirely focused on "giving itself a reason to exist, rather than solving the film industry's" challenges. Specifically he highlights these two things:
Leaked emails revealed the Motion Picture Association of America’s ongoing plans to censor the Internet to reduce digital film piracy.
The hack prompted a surprise, online Christmas Eve release of The Interview that let us observe the effect of a new distribution model on film revenue.
We have, of course, covered both of these, but Dourado puts them together nicely in context, showing how the MPAA's site-blocking/filtering/censorship strategy is one focused on destroying many of the opportunities of the internet, while the digital release of The Interview showed how embracing digital can actually be quite useful for Hollywood -- not that the MPAA wants anything to do with that at all.
When put together, these vignettes raise important questions about the future of the film industry and its lobbying efforts. Is the MPAA really representing Hollywood’s long-term interests in Washington, or is it trying to fight old battles over and over in an attempt to justify its own existence?
Dourado goes through the detailed history -- revealed by the Sony Hack -- of how, post-SOPA, the MPAA has regrouped to focus on ways to bring back site-blocking and censorship online, while simultaneously attacking Google at every turn (even when Google did exactly what the MPAA asked for and demoted sites the MPAA dislikes). As Dourado notes:
But the more striking point is what this strategy reveals about the MPAA: the organization still deeply believes in site blocking as more or less the solution to online piracy. It continues to position itself as an enemy of the open Internet.
From there, he discusses the success of the online release of The Interview, pointing out how well it did. Of course, some of that may have been because of all the (somewhat questionable) news about the supposed threat from North Korea, leading some to choose to watch it for patriotic reasons. Still, Dourado notes that, while there was piracy of the film as well, much of it came outside the US, because Sony initially limited the release to US only online. And the movie did make a fair bit of money online and, perhaps more importantly, got people to pay attention to its online efforts:
There is additional evidence that the online release was a win for Sony: its YouTube channel gained 243,000 new subscribers in the aftermath of the Interview release. As YouTube entrepreneurs like Michelle Phan would note, subscribers are as good as cash, a ready source of revenue for future online movie releases, if Sony decides to do more of them.
The Interview episode shows that the Internet need not be viewed only as a source of piracy. With a modest change in business model, it can also be the film industry’s next great distribution platform.
And then you get to the divergence question: which strategy is best for Hollywood and the film industry... and which strategy is best for the MPAA? Take a wild guess:
What is the best strategy for the film industry going forward? Should it continue to fight the open Internet, as it did with SOPA, and as it has continued to do through state AG investigations and lobbying the ITC? Or should it embrace the Internet as a potentially profitable distribution platform that is in any case here to stay?
It’s clear which strategy the MPAA, the lobbying organization, prefers. If the studios were to truly embrace the Internet, the MPAA would have a much diminished reason for existence. There is no one you need to lobby in order to release films online. Many employees, such as chairman Chris Dodd and general counsel Steven Fabrizio, would have little to do. The organization would have to go back to administering its film ratings system and asking states for ridiculous film tax credits.
He goes even further, pointing out that this stupid focus on "content protection" has been shown time and time again not to work, whereas embracing the internet seems much more likely to work. But, of course, it would leave the MPAA with less things to do. And thus, to me, it goes all the way back around to the Shirky Principle. The MPAA has to keep focusing on "the piracy problem" because it has set itself up as "the solution" to that problem, perhaps knowing full well that it's a solution that can never be solved. Yet, because of this, it guarantees a large role for itself, convincing gullible studio bosses to keep forking money over to the MPAA, so that its leadership can keep earning multi-million dollar salaries.
The real issue here is that, as younger, more internet-savvy filmmakers continue to bubble up throughout Hollywood, sooner or later more of them are going to realize what a farce the MPAA has become. And just like the MPAA's "content protection" strategy has totally failed Hollywood, eventually it's going to totally fail itself as well. That's what you get for fighting the future, rather than embracing it.
Last June, Elon Musk and Tesla made some news in freeing up Tesla's patents, hoping to jumpstart the market for electric cars. As we pointed out at the time, this highlighted how patents can, and often do, hold back innovation -- and we hoped that others might take notice. It's taken a while, but at CES this week, Toyota also announced plans to free patents, focusing on the 5,680 patents (including pending patents) it has on fuel cell drive systems. The details still matter, but Toyota says that the patents are all available, "royalty free." The patents seem to cover the whole stack of things necessary to develop hydrogen fuel cell cars -- including the patents for hydrogen stations.
Of course, the idea, as with Tesla, is that the market needs to be jumpstarted, and that means a lot of companies working together to help build the infrastructure and educate the market. That's done best by sharing the information and letting everyone compete on the actual execution. But, of course, that's what we've been arguing should be the case for lots of technology areas as well. The patents are only serving to hold back so many markets, not allowing companies to build the best possible products they can, and thus limiting overall innovation and adoption.
Hopefully more companies -- and not just automakers -- will start to recognize why this is such a good idea, not just for their own business, but for innovation in general.